Mini Series on Decentralized Insurance: Part 2

Mini Series on Decentralized Insurance: Part 2

21-Sep-2016 by Kary Bheemaiah

Part 2: P2P Insurance and the Blockchain: Opportunities worth exploring

Curious how blockchain can be used in insurance? Here are some opportunities worth exploring Click to Tweet

In the last post, “Insurance and the Blockchain: Peer to Peer or People to People?”, we had a quick introduction to the concept of P2P insurance and how the Blockchain can have a leveraging effect on the scalability of these kinds of insurance models. There are a number of ways this technology can be utilized to address existing issues and thus create new opportunities. In this post we will discuss three, clear use cases and get introduced to some of the new players in this space.

3 use cases of blockchain and smart contracts being used in P2P insurance models by Kary Bheemaiah Click to Tweet

Opportunity #1: P2P Insurance and Social Networking

If we were to focus just on health insurance for a moment, P2P models could allow insurers to leverage the peer pressure factor to reduce premiums being paid, whilst encouraging healthier lifestyles. Along with the power of social networking, this could also be extended to support sales and reduce risky behavior.

“Hmmm,” you say, “sounds like a nice concept, but how would this work?”

Imagine a scenario where a group of friends with similar lifestyles/interests group together to get a P2P insurance package:

  • The insurer can then provide them discounts if they adopt healthier lifestyles – this model has been tried and tested by Discovery, a South African Insurance company who motivate their customers to form healthy habits.
  • The group members now have personal incentives to improve their lifestyles. At the same time, as they belong to the same entourage and enlist in similar activities, they will be participating in gamesmanship as a natural instinct. Thus, by having an insurance package that leverages this already existing phenomenon, the insurer is able to develop the connective tissue with the P2P insureds.
  • Apart from resulting in greater savings in terms of reduced premiums, it also develops loyalty with the provider. The Blockchain and Smart Contracts can then be used to automatically respond to these fluctuations in the dynamics of the groups. When a P2P offer is made, thresholds can be set.
  • If a participant were to reduce their cholesterol levels or reduce their sugar intake (for those prone to diabetes) within a period of 3 months, then the fees would drop by a certain percentage. This would require that the participants use IoT Appliances (like a FitBit Flex) that track their daily progress. The information would then be analyzed and sent as an Input signal to the Smart Contract, which would execute changes when a limit is reached (the output). The history of each transnational exchange resulting from these operations can be stored on the Blockchain. This kind of granular data for individuals and groups (based on demography, age, geography, etc.) could also be used for further statistical/data analysis to determine trends and patterns.

Opportunity #2: Tailored Life Insurance Products

Current insurance packages have a one­-size-­fits-all approach which fails to take into consideration the differences in lifestyles and risk taking tendencies (Eg: Skydiving vs Bowling as a leisure activity choice). Hence, P2P insurance offers ought to be made based on these factors.

The platform should allow the insured to select their favorite activities and calculate a risk score based on that. At the same time, it should also be remembered that activities can change. Hence, the Smart Contract that is generated for one kind of activity should also have the ability to adapt for episodes of higher or lower risk activities.

If a group of bowlers were to go for a one-off skydiving experience, rather than creating a new policy just for this singular activity, the platform should provide the ability to purchase episodic insurance (more on this in a future post). The technical challenges of coding such kinds of Smart Contract are to be analyzed with regards to this use case. Tailoring products extends beyond niches and can also include lifestyle changes. As Smart Contracts can also interact with the outside world via a connection to the IoT (think SLOCK.IT), much more specific products can be given to clients.

If a client purchases an autonomous car, then the risk premium can be altered based on whether it is being driven in autonomous mode or manual mode. The premium can be proportional to the miles driven – eg: A multiplier of 500 applies to every kilometer driven in manual mode. If the client is a good driver, then the policy premium can decline every 6 months or 1 year. This makes more competitive pricing.

Otherwise, if they drive a low CO2 emission car, then their environmental concern can be rewarded in the same way. These fluctuations can be monetized via multiple micro transactions for which the Blockchain and Smart Contracts are ideal. The linking of telemetric data from the car to the insurer will need to explored in greater detail and there are a few startups that are currently exploring this avenue.

Opportunity #3: Assessing, pricing, and limiting risk

Given the rapid expansion in the amount and types of information becoming available via telematics, IoT, etc., these new streams of information are in the process of removing the monopoly of assessing, pricing, and limiting risk which is normally done by insurers.

Underwriting can then be based on causal rather than correlative data, enabling more accurate loss predictions, less arbitrary pricing decisions, and more effective loss control suggestions. These inputs can then be used to tailor specific Smart Contracts.

Secondly, this will also see the rise of Usage Based Insurance (UBI).­ Not too far down the road, UBI can likely to become the rule rather than the exception as vehicles are increasingly operated by all their new autonomous safety technologies. This has been explained in the autonomous car example. This is also of specific importance to those persons who work in hazardous areas.

Access to more precise data could eliminate a lot of time and inconvenience from the insurance application, renewal, and claims processes, while improving the accuracy of underwriting and pricing decisions by basing them on the actual, ongoing state of an insured property or individual.

Thirdly, a side effect this kind of advancement can help leveraging the first mover advantage. Insurers who begin faster, more convenient customer experience at a lower cost can use the major savings from automated underwriting, pricing, and claims to take market share from less tech proficient competitors.

Takeaways

There are a number of other uses that can be explored with the Blockchain and Smart Contracts in the context of the Insurance industry. These include – Extensions of Episodic Insurance, Fraudulent Claims, Risk Pooling, etc. At the same time, there are a number of hick-ups in deploying this technology in the Insurance industry. However, these by themselves are subjects for another post. Progress, however, continues to be made, and the table below shows some of the startups that are currently paving the path. Let’s end on that progressive note this time. More to follow in the next in this series.

Blockchain based insurance Companies P2P Insurance
Teambrella Lemonade
SafeShare Besure
InsurETH Friendsurance
Oraclize Guevara
Tradle
Codis (Ripple Labs)

Insurance and the Blockchain: A Mini Series on Decentralized Insurance Part 2 by Kary Bheemaiah. Click to Tweet

Key Words: #Insurance, #Blockchain, #P2P, #Smart Contracts

 

Kary Bheemaiah is a researcher, consultant, mentor and guest speaker based in Paris. In 2014 he presented his thoughts on currency evolution at a TEDx conference. Since then, he has been writing and teaching on subjects related to Blockchain, economics and the effects of technological change on society. His articles have been published in WIRED, Harvard Business Review, and Les Echos among others. He is currently the Head of research at Uchange.co